Issue #69: Music NFTs: Part II
We’re back talking about music NFTs this week.
If you didn’t read Part 1, or did but inadvertently purged my lukewarm takes between then and now, the one sentence summary is “music NFTs represent a layer of scarcity on top of an abundant product with a fixed unit price.”
Since I wrote Part I, I’ve came across a few tweets talking about how much more money artists are making from NFTs, and from far fewer people, than they are from streaming royalties.
We’re going to unpack why. Hint: I’m willing to pay X to consume something. But I’m willing to pay X + Y for an investment and social status.
Let’s zoom in…
Acknowledging how and why we engage with music is key to understanding why NFTs open a new, potentially more profitable, lane for artists.
If you’re a fan of an artist today, there’s one primary way to interact with their music - consume it. You can listen to a recording or you can go to a show and listen to it live, but your engagement with the art is limited to consumption.
Music consumption has been commoditized. In the heyday of CDs - the 90s - when you wanted to consume an artist’s music, you bought their product directly. Since the rise of streaming though, distribution (and therefore consumption) has been commoditized.
In 2022, most of us don’t buy music directly from an artist anymore. We pay $9.99/mo for a Spotify subscription and listen to as much music as we want, from any artist we want. We’re not paying for a book, we’re paying for a library card.
That’s the how. Let’s consider the why…
Why do you consume a particular song? Presumably because you like it! Having an affinity for the music is really the only prerequisite for consumption.
So to summarize, the primary way we engage with music today is by consuming music we have an affinity for.
NFTs offer a second way to engage with music…
Unlike consumption, ownership has not been commoditized (yet). As a fan, your engagement is directly with the artist.
The prerequisites to ownership are different too. Remember, consumption requires an affinity for the music. Affinity is a motivation for owning a music NFT, but it’s not the only one. Other motivations include:
investment (I think it will increase in value),
social signal (people think I’m cool), and
patronage (I want to support this art)
I really can’t do any of these things directly by streaming an artist’s music on Spotify.
Investment and social signal are powerful forces driving the perceived value of music NFTs. It’s why people are willing to spend a few hundred thousand dollars on a Bored Ape. Do they like the art? They probably don’t hate it…but the real motivator is the expectation of profit and a seat at the cool kids table.
On Friday, I bought a few NFT packs from the Chaos music project (80 people with complimentary skills collaborating to create and publish music over an 8-week period). I’ll write an issue on Web 3-native music business models, but in the meantime I recommend everyone check it out (shoutout @blockchainbrett for putting this project on my radar).
My motivations for buying the Chaos NFTs were (in order of priority):
patronage (first and foremost, I want to support the project)
social signal (I want people to know I was early)
investment (I don’t expect to make any money on these, but there’s a small chance they increase in value overtime)
This is an interesting case study because these motivations are completely different from my motivation for buying/streaming music (affinity).
So to summarize, while we consume music we have an affinity for, we own music NFTs as an investment, as a social signal, to support the artist, or because we have an affinity for the music.
This is all leading to the key question: “The market tells me I only need to spend $9.99/mo to consume music, but how much am I willing to spend on an investment? Social status? To be a patron?”
A lot more than $9.99.
Today’s music industry is based on driving consumption of a fixed-price product. If you want to increase earnings as an artist you need to increase your listener base (aka “demand”). The more people that buy your music (directly, or indirectly via streaming services) the more money you can make. Volume is the name of the game.
An engagement model based on NFT ownership gives artist two additional levers to play with…supply and price. The artist can restrict supply, and set the price at multiples higher than they could sell a digital download.
Here’s how this can play out to the artist’s advantage…
Interestingly, consumption and “liking it” aren’t prerequisites to ownership. RAC receives the same amount of royalties for primary and secondary NFT sales whether the owners listened and liked the music or not.
I’m willing to pay a certain amount to hear a song. I’m willing to pay a different (potentially higher) amount for things I view as an investment, or that provide social signal. NFT ownership taps into different emotions, desires and motivations…and they all have different price points.
Artists that can maximize those price points will multiply their earnings, and they can do it with far less fans.
What’s the relationship between music consumption and music NFT ownership? Are they truly independent markets?
If you’re the artist, do you want one to drive interest in the other?
Thanks for reading,
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I think selling NFTs make sense as part of the overall solution but by themselves, not a long-term viable solution for most artists. Selling an album or collection for 25 ETH is not enough to live on, which forces the artist to create more and more new and original work, which is hard to do. Streaming is a source of subscription and ongoing revenue, and could work well if the model was flipped where most of the revenue goes to them and not a Spotify/Apple. I am wondering if a web3 solution exists that can do this and if the economics/tokenomics would work. Digital products like music do not require logistics and distribution infrastructure like an IRL product. The only big cost is marketing to capture awareness, but if an artist already has a customer-base, then that cost is greatly diminished. Customer retention costs are like 7x less than acquisition costs, on average. Thus, what if a web3 model exists where 80% of the revenue goes to the artist (remaining costs are to the app to stream the music, nodes to manage transactions and music storage, etc)?